which of the following decreases the money supply? choose 1 answer: a people prefer to hold more money…
which of the following decreases the money supply? choose 1 answer: a people prefer to hold more money, regardless of the interest rate. b the aggregate price level decreases. c banks loan more and keep less in excess reserves. d the reserve requirement decreases. e people keep money in their homes instead of banks.
Answer
Brief Explanations:
When people keep money in their homes instead of banks, the money - multiplier process is disrupted. Banks have less money to lend out and create new money through the process of fractional - reserve banking, thus decreasing the money supply. Option A affects money demand, not supply. A decrease in the aggregate price level (Option B) affects the value of money but not the supply. When banks loan more and keep less in excess reserves (Option C), the money supply increases. A decrease in the reserve requirement (Option D) also allows banks to create more money and increases the money supply.
Answer:
E. People keep money in their homes instead of banks.